In this article, you will learn about various stock market intermediaries involved in the entire cycle of share market transaction.
Lets get started.
About Stock Market Intermediaries
When you are trying to begin stock trading, there are several working entities who are responsible for the seamless trading experience you enjoy.
No, we are not talking about opening up a Demat or a Trading account; instead, we mean the Share Market Intermediaries.
Now, the question is who they are? In simple terms, they are the institutions that complete the entire stock trading operations.
So, in this article, we will talk about some of the significant intermediaries that you should be aware of, and what are their primary jobs.
Every one of them relies on one another so that you can buy or sell shares with ease. So, let us jump in.
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Stock Brokers as Stock Market Intermediary
The first & foremost Stock Market Intermediary that we will discuss is the Stock Brokers. Probably the most significant of the lot, as they execute orders directly to the Stock Exchanges.
Now, they can be an agency or an individual; however, they must own a license that states the rights to traders to buy or sell shares from the market.
Typically, the Stock Brokers are companies or agencies who let the general participants trade in the stock market, while they charge brokerage fees.
So, you need to find a suitable company and open up a pair of accounts – Demat and Trading accounts.
Once the accounts are ready to use, you can buy or sell company shares. Of course, you need to pay the brokerage fees until the time you wish to hold the shares.
Once there was a time when communicating with the Stock Broker and to purchase or sell a share was difficult.
There was a time when you either have to call the Dealer or the executive who works with the stockbroking company, or may have to physically present to their offices.
However, things have changed with the introduction of technology. Today, you can get all the data on your computer screen or even at your smartphones.
Placing an order has also become relatively easy. You can watch the status of your interested stock and place an order by yourself whenever you feel the price is right.
Yes, you still need to pay the brokerage fees, but as they provide all these technologies at your fingertips, the price that you pay justifies.
Services Provided by Stock Brokers as Share Market Intermediary
Now, let us learn about all the fundamental services that the Stock Brokers do provide to you while you trade stocks:
- The brokers have the rights to buy or sell company shares. So, they allow you to trading stocks in the market for a brokerage fee.
- Most stockbroking companies nowadays offer online trading platforms so that you can trade stocks by yourself.
- It is the job of the brokers to issue the Contract Note, which contains all the details of all the stock trading activities that you have done in a day.
- The brokers carry out and validate every fund transfer that you may need to make from your bank account to your trading account.
- Most stockbroking companies either develop an in-house backend panel or hire a 3rd party company so that you can access all your stocks’ data with ease. You can see all the information you need in one single window.
Depository Participants as Share Market Intermediaries
When you buy any company stock, you apparently gain ownership of that respective number of shares that you have bought.
Now, before you purchased the stocks, you need a Demat account, which consists of all the records of your currently-owned company shares.
However, you need to open up a Demat account from a registered institution who has this specific rights. You can call them Depository.
The Depositories are Financial Intermediaries, which work in tandem with the stock exchange that provides share certificate.
You can see those certificates, which are a form of receipts that indicates your ownership of the number of shares you own. Of course, you can see them in the Demat account.
Currently in India, you can open a Demat account from any stockbroking company. However, they don’t have the rights to do so by themselves. They need to be the Depository Participants (DP).
At present, the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are the two Depositories available in India, which strictly follows the SEBI rules.
Banks as Stock Market Intermediaries
One of the fundamentals that you should know is you need three kinds of accounts to begin stock trading.
A Trading account to perform the stock trading operations, a Demat account to keep a digital record of your owned stocks, and a Savings account, for the fund transfers.
Most people in India usually go to a bank to open up a Savings account. However, there are companies that offer 3-in-1 accounts, where Savings account come in a cluster.
Now, you can say the Banks are a Financial Intermediary. Since they initiate the fund transfer from your Savings account to your Trading account, their job becomes pivotal for the trade to happen.
Of course, you must be the primary account holder of the Savings account that you are connecting with the Trading account.
NSCCL & ICCL as Financial Intermediaries
There are two more significant Financial Intermediaries that you should know – National Security Clearing Corporation Ltd (NSCCL) and Indian Clearing Corporation Limited (ICCL).
Even though you don’t need to interact with them directly, you should be aware of such a service which do exist.
Now, both NSCCL and ICCL does more or less the same thing, sometimes work in tandem. When you buy a particular stock, the job of NSCCL and ICCL is to make sure someone sold that specific shares to you.
This is to ensure there is no dubious buyer or seller, and the traders shouldn’t be a defaulter when it comes to the payment.
Conclusion – Stock Market Intermediaries
The Depository Participants are crucial for the entire stock trading operations. You can say they are the director of a movie, while the traders are the actors.
Everything works in a symmetrical way as these Intermediaries do their job correctly. Meanwhile, the SEBI issued a guideline for these entities to work collectively and provide the best service then can.
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